Supplemental coverage associated with more rapid spending growth for Medicare beneficiaries

Lowering both Medicare spending and the rate of Medicare spending growth is important for the nation's fiscal health. Policy makers in search of ways to achieve these reductions have looked at the role that supplemental coverage for Medicare beneficiaries plays in Medicare spending. Supplemental coverage makes health care more affordable for beneficiaries but also makes beneficiaries insensitive to the cost of their care, thereby increasing the demand for care. Ours is the first empirical study to investigate whether supplemental Medicare coverage is associated with higher rates of spending growth over time. We found that supplemental insurance coverage was associated with significantly higher rates of overall spending growth. Specifically, employer-sponsored and self-purchased supplemental coverage were associated with annual total spending growth rates of 7.17 percent and 7.18 percent, respectively, compared to 6.08 percent annual growth for beneficiaries without supplemental coverage. Results for Medicare program spending were more equivocal, however. Our results are consistent with the belief that current trends away from generous employer-sponsored supplemental coverage and efforts to restrict the generosity of supplemental coverage may slow spending growth.